2007 (3) TMI 421 - AT - Income Tax

Deduction of tax at source u/s 195 - DTAA between India and Singapore - disallowance on Payment for consultancy services - fees for technical services Or Not - element of technology in the consultancy services - Rule of Consistency - HELD THAT - We find that earlier years similar type of services were sought by the assessee and its JVC i.e. , BORL and on all remittances of the fees, TDS were deducted and paid. Last time i.e. , in the year 2000 when P G were engaged by the assessee to make study updation. At the time of payment of fees, TDS was deducted, but, the Order of the Assessing Officer passed under section 195 was challenged before the CIT(A) and the CIT(A) relying upon the decision of the Advanced Rulings 1998 100 Taxman 206 has held that consultancy fees paid by the assessee to P G is chargeable to tax in India as per the provisions of section 9 of the Indian Income-tax Act as well as the provision of Article 12 of DTAA between India and Singapore. This order of the CIT(A) was not challenged and was accepted by the assessee. We are of the view that since the issue in dispute is quite complex and by now number of orders of the Tribunal are passed on the subject, this issue requires a fresh adjudication in the light of legal proposition laid down by the Tribunal through various orders. The principle of rule of consistency cannot be applied in this type of situation. Generally, a view taken in the earlier year should be followed in succeeding years, but, whenever the legal position is changed or re-interpreted, the legal issues should be decided afresh in the light of current interpretations of law. We, therefore, do not find any force in the arguments of the Revenue that following the rule of consistency, the Order of the CIT(A), deserves to be confirmed. Though the payment for consultancy services falls within the definition of fee for technical services in opening para, but, it would be subject to certain conditions enumerated in sub-clauses ( a ), ( b ) and ( c ). If the consultancy services does not have any technical knowledge, the fees paid for it does not fall within the definition of fee for technical services as per clause (4) of article 12 of DTAA. The same legal position was also explained by the Tribunal through various orders, aforementioned. In the instant case, nothing had been brought out by the Revenue that the consultancy services or the report submitted by the P G to the assessee, contains an element of technical knowledge or any technology which could have been applied by the assessee. In the absence of an element of technology in the consultancy services, the remunerations paid for it, does not fall within the definition of fees for technical services, as such, the provisions of article 12(4) cannot be attracted to tax the payment of consultancy charges to P G. Since the assessee is not liable for any payment of taxes, he is entitled for the refund of the TDS deducted and paid. We, therefore, set aside the Order of the CIT(A) and direct the Revenue to refund the TDS deposited by the assessee along with the interest u/s 244A of the IT Act. In the result, appeals of the assessee are allowed.

Issues Involved:
1. Delay in filing appeals.
2. Nature of remittance to M/s. Purvin & Gertz Inc., Singapore (P&G) as fees for technical services.
3. Reimbursement of actual expenses and its taxability.
4. Claim for interest under section 244A in case of refund.

Issue-wise Detailed Analysis:

1. Delay in Filing Appeals:
The Office raised an objection regarding the appeals being time-barred by three days. The learned counsel for the assessee explained the delay, and the Tribunal, being convinced with the explanation, condoned the delay and admitted the appeals for hearing.

2. Nature of Remittance to P&G as Fees for Technical Services:
The primary issue was whether the remittance of USD 65,000 to P&G constituted fees for technical services under Article 12(4)(b) of the Indo-Singapore DTAA, thereby obliging the appellant to remit tax under section 195 of the Act. The CIT(A) had previously held that the consultancy fees paid by the assessee to P&G were chargeable to tax in India as per section 9 of the Indian Income-tax Act and Article 12 of the DTAA. The Tribunal, however, examined the nature of the services provided by P&G, which included market study, supply and demand analysis, and price forecasts, and concluded that these services did not involve the transfer of technical knowledge or technology enabling the assessee to apply it independently. Citing various Tribunal decisions, including Kotak Mahindra Primus Ltd. and Boston Consulting Group Pte. Ltd., it was held that the services rendered did not qualify as technical services under Article 12(4)(b). Therefore, the remittance was not taxable in India, and no TDS was required.

3. Reimbursement of Actual Expenses and its Taxability:
The assessee argued that the reimbursement of USD 6,500 for actual travel, lodging, and boarding expenses did not constitute income and hence was not chargeable to tax. The Tribunal did not specifically address this issue separately in the judgment, implying that the reimbursement was accepted as not constituting taxable income.

4. Claim for Interest under Section 244A in Case of Refund:
The assessee claimed interest under section 244A in the event of a refund becoming due. Since the Tribunal concluded that the remittance was not taxable and directed the Revenue to refund the TDS deposited by the assessee, it also directed the Revenue to pay interest under section 244A on the refunded amount.

Conclusion:
The Tribunal allowed the appeals of the assessee, setting aside the order of the CIT(A). It directed the Revenue to refund the TDS deposited by the assessee along with interest under section 244A, concluding that the remittance to P&G did not constitute fees for technical services under Article 12(4)(b) of the Indo-Singapore DTAA and was not taxable in India.

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